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Capital Maintenance

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Capital Maintenance

  • This topic has 3 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • January 22, 2017 at 2:53 am #368818
    Anuja Nair
    Member
    • Topics: 365
    • Replies: 353
    • ☆☆☆☆

    Question) Ross Ltd made a profit of $350 000 for 20X9 based on historical cost accounting principles. Specific price indices increase during the year by 20% and general price indices by 5%.

    How much profit should Ross Ltd record for 20X9 under three different capital maintenance concept : money financial capital maintenance, real financial capital maintenance, physical capital maintenance?

    For the money financial capital maintenance i understand the answer is $350 000. But i don’t know how to work out the financial or physical capital maintenance since neither the opening capital nor the closing capital is given.

    The answer key :
    Money financial capital maintenance $350 000
    Real financial capital maintenance
    $332 500
    Physical capital maintenance
    $280 000

    January 23, 2017 at 5:42 pm #369072
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    $350,000 achieved after a 20% price increase means that, without that increase, the profit would only have been $280,000 ie $350,000 represents 100%. What would be the equivalent figure without that 20%?

    $280,000

    Similar thinking behind the real financial maintenance concept – if $350,000 is 100% after a 5% increase what value would 95% be?

    $332,500

    These theoretical nonsense concepts play only a very TINY role in F7 – much easier marks to look for and those topics will be almost guaranteed to appear in every F7 exam!

    January 24, 2017 at 3:30 am #369140
    Anuja Nair
    Member
    • Topics: 365
    • Replies: 353
    • ☆☆☆☆

    Got it! Thank you sir !

    January 24, 2017 at 8:46 am #369199
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    You’re welcome

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